2007 Issue 1 - New York City Bar Association

L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E
and risk-management policies, 75 meeting with the outside auditors, 76
“review[ing] with the independent auditor any audit problems or difficulties
and management’s response,” 77 and meeting with the full Board. 78
In addition, all listed companies are required to disclose and adopt corporate
governance guidelines, 79 as well as business conduct and ethics policies.
80 Further “[e]ach listed company CEO must certify to the NYSE each
year that he or she is not aware of any violation by the company of NYSE
corporate governance listing standards, qualifying the certification to the
extent necessary.” 81
D. Auditors
Another important force in play in today’s regulatory and enforcement
landscape is the outside auditor. Whereas the federal government
and market regulators wield carrots and sticks that encourage companies
to cooperate, the independent audit firms have also pushed companies to
self-report problems and conduct internal investigations.
Auditors have a statutory duty to report illegal acts to management
and the Board, and, if necessary, to the SEC. Section 10A(b) of the 1934 Act
establishes a reporting and disclosure framework that outside auditors must
follow when they become aware of information indicating possible wrongdoing.
82 When an auditor first discovers evidence of a suspected violation during
an audit, it must promptly inform management and the Audit Committee. 83
After informing the Audit Committee, if the auditor determines that (1)
the illegal act has a “material effect” on the financial statements, (2) senior
management has not taken, or the Board has not caused management to
take, “appropriate remedial action,” and (3) “the failure to take remedial
action is reasonably expected to warrant departure from a standard report
of the auditor, when made, or warrant resignation from the audit
engagement,” then the auditor must apprise the Board of its conclusions. 84
75. Id. at § 303A.07(c)(iii)(D).
76. Id. at § 303A.07(c)(iii)(E).
77. Id. at§ 303A.07(c)(iii)(F).
78. Id. at § 303A.07(c)(iii)(H).
79. Id. at § 303A.09.
80. Id. at § 303A.10.
81. Id. at § 303A.12.
82. 15 U.S.C. § 78j-1.
83. Id. at § 78j-1(b)(1).
84. Id. at § 78j-1(b)(2).
T H E R E C O R D
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